Expert Risk Articles

Japan earthquake - handling claims in a crisis

Clients all over the world, catastrophes all over the world. Allianz Global Corporate & Specialty is used to managing large losses wherever they happen. An interview with Andreas Shell and Alexander Mack, the AGCS heads of claims, and Ray Hogendoorn, the head of AGCS claims general adjusters talks about how AGCS manages a crisis, special aspects of the Japanese earthquake on March 11, 2011 and why the first question to ask is always "How is your family?"

In a situation like the Japan earthquake on March 11, what happens first?

Shell: The claims crisis process is triggered. I am also the head of claims crisis for all of Allianz Group, so once I get notified of an event, I ask all the Allianz subsidiaries to send information on any exposures. Internally at AGCS I also ask all the parts of our business to report their exposures.

How quickly does that go?

Shell: We get some figures early on, but they only give a partial picture. The main issue to begin with is our own local staff. We want to make sure they and their families are safe. This is what is going on all over an affected region, looking after human safety. It’s also a very emotional moment, so financial concerns are secondary. As a result, it takes time before we get a better idea of the insurance situation.

How do you find out about what damages there actually are?

Hogendoorn: That’s where people like me come in. As a claims adjuster, I need to be on the ground as soon as possible. When the Chilean earthquake hit in 2010, I was on the first flight out of Europe to Santiago. Often when we have a client with a local subsidiary, the staff there won’t be used to providing loss information. They’ll say something like “It’s all in ruins.” One of my jobs when I’m there is to provide a more accurate picture for our client, and also for us as insurers.

And people there are also looking after their own safety...

Hogendoorn: Absolutely. That’s why when I get off the plane, the first question I ask the local staff is "How is your family?" If they don’t feel secure about their families, they won’t have their mind on the business. They should take care of that first. We can wait. What’s most important for us in a crisis situation is not to "cut a deal" and be done with it. We’ll sit out the crisis with the client.

So what are standard procedures then?

Shell: There is a standard process, but each crisis has its own special features which we need to adapt to. In the case of the Japan earthquake, for example, there is the compound effect of the Tsunami but also the danger about radioactivity due to the damage of atomic power plants. Because of that, we cannot get claims staff into regions that were hit the hardest.

Mack: And there isn’t a one-size-fits-all catalogue of questions. It’s more of a decision tree. One question leads to a decision that has to be made, which will then lead to a different question.

Hogendoorn: Yes, if it looks like a client’s building is still standing, that doesn’t mean it’s safe to work in or even enter to remove critical equipment. I need a structural engineer to verify that. Even if it means a higher financial loss, I can’t put a client’s staff at risk in an unsafe place. I’d rather lose the equipment than the people.

From left to right: Andreas Shell, Alexander Mack, Ray Hogendoorn

What kind of exposures does AGCS face?

Shell: In this situation, there are obvious property losses. Then there’s business interruption and contingent business interruption. When damage causes a factory of our client or his supplier to close, it isn’t producing, and there can be a big financial impact. The longer that goes on, the bigger the impact. But then we need to see what the real impact is, whether there are alternative production sites and other such things. We’ll often work with the client to develop or enact contingency plans and locate alternate suppliers or alternate transport routes to ensure that the financial loss remains low.

Hogendoorn: The basic concern is maintaining cash flow. If a client needs an advance payment to maintain that for their local company, of course we make those funds available. But money as such is not the primary thing they are turning to us for. Staying in business is.

Are there marine or aviation concerns?

Shell: In marine transport, we can expect claims for hull losses to come more quickly than cargo losses. On the one hand, you have cargo not getting delivered to Japan and on the other there is cargo that is not being picked up. It will take some time to find out from the client what losses they had.

Mack: Aviation can be affected by a natural catastrophe like this but, most likely the exposure is limited to damages on the ground like hull damage to aircraft and damages to spare parts located in destroyed warehouses. In Japan, loss adjusters have already started to assess the damages and first payments will be made promptly.

What about liability claims?

Mack: Generally, liability claims do not come up immediately after such a disastrous event since the focus is on personal and family safety and then on first-party losses and their remediation. In the case of the Japan earthquake and the tsunami, it’s a force majeur. Third-party claims based on losses caused by such an act of god are generally excluded from legal liability or not insured, but as we have seen after Katrina, in the aftermath of such a catastrophe all kind of liability claims will be raised by individuals, companies and subrogating insurers.